{
  "id": 11917146,
  "title": "IT Q2 preview: Muted growth, steady margins likely; deal conversion, AI deflation in focus",
  "url": "https://urgent.news/2026/10/04/it-q2-preview-muted-growth-steady-margins-likely-deal-conversion-ai-11917146",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-10-04T11:49:59.000Z",
  "source": {
    "name": "Economic Times Tech",
    "slug": "economic-times-tech",
    "url": "https://economictimes.indiatimes.com/tech/information-tech/it-q2-preview-muted-growth-steady-margins-likely-deal-conversion-ai-deflation-in-focus/articleshow/134674371.cms"
  },
  "original_language": "en",
  "account": "Q2 earnings for India's leading IT firms are anticipated to show modest revenue growth and stable margins, as clients maintain conservative budgets, according to analysts. Research advisory UnearthInsight predicts a quarter-on-quarter growth of 0.5-1% for the top five IT companies in the July-September period, mirroring the lack of improvement observed in the April-June quarter. Founder and CEO Gaurav Vasu attributes this stagnation to the continued tightness of discretionary budgets, ongoing geopolitical tensions, and lengthy decision cycles. Gartner Senior Principal Analyst Biswajit Maity suggests Q2 could be a bit stronger than the previous quarter, driven by previously awarded contracts transitioning to revenue-generating stages, but market conditions remain largely unchanged with cautious discretionary spending and a focus on productivity outcomes.\n\nBooking activity is expected to remain robust, albeit slower in converting to revenue, as decision cycles remain lengthy for the next 12-18 months. Tata Consultancy Services (TCS), HCLTech, and Infosys are set to report their Q2 earnings on October 8, 12, and 23, respectively. Vasu does not foresee significant revisions to FY27 guidance, though a select few companies may modestly increase their top-end estimates by around 0.5%. UnearthInsight projects full-year growth of 3-4%, with most of this growth coming from inorganic expansion rather than a rise in demand. The tech services industry has allocated USD 3.6 billion to 14 mergers and acquisitions to date in FY27.\n\nMargins are anticipated to remain under pressure as wage hikes have only recently been absorbed, and investments in AI platforms and partnerships must be integrated into deals to secure them. Efficiency gains from AI are being passed back to clients. However, UnearthInsight anticipates slight margin improvements for tier-one players such as TCS, Infosys, and HCLTech, while mid-tier firms will maintain their current margins as they absorb M&A integration costs. Gartner expects margins to remain broadly stable, with limited room for expansion as productivity gains from automation and AI investments are offset by wage inflation for in-demand skills and client demands for pricing concessions.\n\nThe technology spending landscape remains cautious, with organizations prioritizing projects that yield measurable business outcomes, cost optimization, and risk reduction. Investment decisions continue to be selective, focusing on initiatives with clear ROI, productivity gains, and operational resilience. Demand remains primarily driven by AI, cybersecurity, and modernization initiatives, while discretionary transformation programs are subject to tighter budget oversight and longer approval cycles. Banking remains under stress, while retail and manufacturing are pressured by persistent inflation, making the US the weakest market. Europe is expected to grow on cost-optimization deals, while the Asia Pacific will experience faster growth, and the Middle East will slow significantly due to the ongoing conflict. Gartner identifies the financial services, healthcare, manufacturing, and telecommunications sectors as key drivers of demand, while retail and oil and gas are anticipated to be comparatively softer.",
  "summary": "Research advisory UnearthInsight expects the top-five IT companies to grow 0.5-1% quarter-on-quarter in the second quarter of FY27, with little improvement over the April-June period.",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 2,
    "also_reported_by": [
      {
        "outlet": "Hindu BusinessLine",
        "title": "IT Q2 preview: Muted growth, steady margins likely; deal conversion, AI deflation under lens",
        "url": "https://urgent.news/2026/10/04/it-q2-preview-muted-growth-steady-margins-likely-deal-conversion-ai",
        "published": "2026-10-04T09:34:17.000Z"
      }
    ]
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}